Are TROC DE L’ILE SA’s (EPA:MLTRO) Interest Costs Too High?

TROC DE L’ILE SA (ENXTPA:MLTRO) is a small-cap stock with a market capitalization of €4.27M. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Companies operating in the Specialty Retail industry facing headwinds from current disruption, in particular ones that run negative earnings, are inclined towards being higher risk. So, understanding the company’s financial health becomes crucial. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into MLTRO here.

Does MLTRO generate an acceptable amount of cash through operations?

MLTRO’s debt levels surged from €3.14M to €4.06M over the last 12 months – this includes both the current and long-term debt. With this growth in debt, MLTRO’s cash and short-term investments stands at €1.26M , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of MLTRO’s operating efficiency ratios such as ROA here.

Can MLTRO pay its short-term liabilities?

With current liabilities at €8.32M, the company has not been able to meet these commitments with a current assets level of €4.60M, leading to a 0.55x current account ratio. which is under the appropriate industry ratio of 3x.

ENXTPA:MLTRO Historical Debt Mar 23rd 18
ENXTPA:MLTRO Historical Debt Mar 23rd 18

Does MLTRO face the risk of succumbing to its debt-load?

Since total debt levels have outpaced equities, MLTRO is a highly leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since MLTRO is presently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.

Next Steps:

MLTRO’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven’t considered other factors such as how MLTRO has been performing in the past. I suggest you continue to research TROC DE L’ILE to get a more holistic view of the stock by looking at: